Toyota has already said it expects the current fiscal year through March 2010 to be its worst ever financially, forecasting a net loss of 550 billion yen ($5.7 billion).

The carmaker has struggled to keep up with falling demand, especially in the U.S. and Europe. It has suspended production at factories, cut temporary workers in Japan and offered buyouts to American workers.

Toyota has not closed any factories and retains the capacity to make up to 10 million vehicles per year. But the annual production cut is the latest indicator of how quickly its fortunes have turned.

Prior to the financial crisis and the global credit crunch, sales were soaring. The maker of popular cars such as the Camry and the Prius hybrid overtook GM last year as the world's largest automaker by annual sales.

In the fiscal year that ended in March 2008, it booked a record profit of 1.72 trillion yen. But sales suffered as the global economic slump set in, and a year later it had a net loss of 436.94 billion yen.

Toyota has reacted by picking a member of the founding family, Akio Toyoda, to become its president and lead a turnaround. He will replace current president Katsuaki Watanabe in June.

On Tuesday, Toyota said it would suspend several lines at an engine factory in Japan. The company said it will stop three of 11 production lines at Kamigo, its main engine factory in central Aichi prefecture, to adjust for its lower vehicle output.

In late trade Wednesday, the company's shares were down 2.7 percent at 3,640 yen in Tokyo, while the benchmark Nikkei 225 stock average was up 0.6 percent.